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18 April 2019
Argo Blockchain PLC
('Argo' or 'the Company')
Notice of Requisitioned General Meeting
Further to the announcement made by the Company on 1 April 2019 regarding the requisition received by the Company from Lynchwood Nominees Limited ("Requisition"), Argo announces it is today posting a circular to shareholders ("Circular") containing notice of the requisitioned general meeting of the Company to be held at Fladgate LLP at 16 Great Queen Street, London WC2B 5DG at 10.00 a.m. on 16 May 2019 ("Requisitioned General Meeting").
Lynchwood Nominees Limited holds shares on behalf of First Investments Holding Limited ("First Investments"). The Board understands that First Investments is a corporate vehicle ultimately controlled by Mr Frank Timis.
Pursuant to the Requisition, the business of the Requisitioned General Meeting is to consider the removal of each of Jonathan Bixby and Mike Edwards, together with any director appointed by the Board, as directors of the Company and to appoint an as yet unnamed director.
The Circular contains a letter from the directors of the Company not the subject of the Requisition ("Independent Directors"). The letter sets out the reasons why the Independent Directors of the Company strongly encourage and unanimously recommend that Shareholders VOTE AGAINST the Requisitioned Resolutions.
The Circular will be available to view on the Company's website at www.argomining.co shortly.
In particular, the Circular notes that:
· Mr. Timis has made clear in discussions with representatives of the Board that he does not believe that the current strategy being pursued by the Board will result in a satisfactory return to shareholders. However, Mr. Timis has made no substantive alternative proposals for the running of the Company and has not nominated any alternative director at the time of writing.
· The Board is conscious of the fall in cryptoasset prices over the last 16 months, with the consequential effect on the value of the Ordinary Shares and therefore its Shareholders. The Board is also very aware that the market value of the Ordinary Shares is substantially below the £15.0 million of cash that the Company held at 31 March 2019. Despite the worse than expected industry downturn, the Board strongly believes that the cryptoasset market still has short term profitable characteristics and will also become a major asset class in the long term. This asset class will need a reliable, professional cryptomining (both in respect of Proof of Work and Proof of Stake) industry to support it as it gains wider acceptance. This is the strategy and investment proposition that shareholders supported and backed with substantial capital only eight months ago.
· The Company was admitted to the standard segment of the Official List and to trading on the Main Market of the London Stock Exchange on 3 August 2018, and was the first cryptomining business to float on one of the world's leading stock exchanges. In the time since Listing, the Company has:
§ successfully launched and rolled out a consumer facing mining as a service (MaaS) platform from two operational centres in Canada;
§ in spite of challenging market conditions, in particular the slump in cryptoasset prices which saw Bitcoin fall as much as 80% in the year to January 2019, sold more than 10,000 monthly mining packages in its first financial year, exceeding internal growth targets;
§ in order to address the challenging market conditions, announced a strategic refocus involving a temporary closure of the MaaS business and a switch to mining as principal utilising the Company's existing and to be acquired hardware; and
§ reduced its cost base significantly through renegotiation with key suppliers.
· As a result of this progress the Company retains a very strong strategic position with £15.0 million of cash at 31 March 2019, owned cryptomining assets (being the hardware used by the Company to mine cryptoassets), cryptoassets with a value of approximately £300,000 (as at 31 March 2019), and an attractive market positioning. The Board considers the Company's trading performance since admission to the Main Market of the London Stock Exchange on 3 August 2018 clearly demonstrates the resilience of the Company, its management and its business to challenging operational and market conditions. The business strategy and subsequent strategic decisions were conceived and implemented by the two individuals that First Investments now wish to remove from the Board, even though they have proven their ability as directors to manage the business, to preserve value and to better position the Company.
· The Board strongly believes that the Company's refreshed strategy, robust financial position, established reputation and focus provide a strong foundation to weather current market conditions. The Board therefore believes that, for the reasons set out above, a retained focus on the cryptoasset sector is in the best interests of the Company and its Shareholders as a whole and is most likely to promote the success of the Company.
Update on Effect of Amended Strategy
· The current 'crypto winter' has had a significant effect on all parts of the cryptoasset sector, but in particular on both mining hardware providers and customers. The material reduction in cryptoasset prices has resulted in a significant reduction in mining hardware prices and a reduction of mining capacity (or competition) in the first months of the year as marginal businesses exit the market.
· Despite these headwinds, the Company is now mining profitably on all hardware purchased since inception and expects to generate £220,000 in cryptoassets in the month of April (based on a price of BTC of £3,935, being the price as at 15 April 2019) against a cash operating cost for the Company of approximately £215,000. The Board notes that, in preparing its accounts for the financial year ended 31 December 2018, none of its existing hardware was considered impaired and the Company's internal metrics show this existing hardware remains profitable even with current, depressed, cryptoasset prices. Furthermore, the audit has confirmed that the current three year amortization assumption employed by the Company in respect of its cryptomining hardware is reasonable.
· As a result of depressed cryptoasset prices the Company has been able to acquire hardware at a lower cost than was previously possible, and through its negotiated reduction in operating costs by over 35% has reduced the lifetime costs of running such hardware. For example, prior to receipt of the Requisition, the Company agreed to purchase 1000 Bitmain Z11 mining units for a total consideration of £1.3m to be deployed in May 2019 to mine cryptoassets on the Company's own account. Based on the Company's conservative projections of mining difficulty rates and current cryptoasset prices, the Directors expect to generate the same value of cryptoassets in approximately nine months.
· In conjunction with the other measures adopted by the Board, the Board expects the Company to significantly increase revenue from mining as principal. As a result of this hardware purchase the Board currently expects to generate in the region of £500,000 of cryptoassets during May (based on a price of BTC of £3,935 (the prevailing market price as at 15 April 2019) against a cash operating cost for the Company of approximately £280,000.
· Moving forward, with additional prudent hardware purchases based on the Company's conservative projections of mining difficulty rates and future cryptoasset prices, this operating margin is expected to widen. By the end of Q2, 2019 the Company is projecting to have the equivalent of 400 BTC of cryptoassets on its balance sheet, which at £3,935 per BTC (being the prevailing market price as at 15 April 2019) equals approximately £1.57 million.
· The Company intends to pursue a carefully structured active management strategy for all Company held cryptoassets that is designed to protect the Company in the event that crypto prices decrease and has the potential to provide an upside in a rising cryptoasset market. The Board notes that cryptoassets remain liquid with over £400m in daily transaction volume reported on the top 10 major exchanges (https://coinmarketcap.com/rankings/exchanges/).
· The Board believes that, as a result of the change in strategy and reduction in operating costs, combined with the acquisition of new hardware and active management strategy in respect of owned cryptoassets, the Company will achieve operating cash break even this month.
· Given the operational performance the Board does not believe that further changes of strategy are necessary and believes that the Company is making the best use of the available resources. Notwithstanding the Board's view, as at 16 April 2019, being the latest practicable date prior to publication of this circular, First Investments has not put forward a credible alternative strategy for the Company.
The Board strongly believes that the Company's refreshed strategy, strong financial position, established reputation and focus provide a strong foundation to weather current market conditions. The Board therefore believes that, for the reasons set out above, a retained focus on the cryptoasset sector is in the best interests of the company and its Shareholders as a whole, and that the strategies the Board has identified in the short and medium term will drive the creation of sustainable shareholder value.
Capitalised terms used but not defined in this announcement shall have the meaning given to them in the Circular.
For further information please contact:
Timothy Le Druillenec
Chief Financial Officer
via Tancredi +44 203 434 2334
Financial Communications Advisor
+44 (0) 7876 455323
Tancredi Intelligent Communication
+44 7957 549 906
+44 7812 211 403
+44 203 434 2322
Argo Blockchain plc is a global data centre management business that provides a flexible platform for the mining of leading cryptocurrencies. Argo is headquartered in London, UK and operates state-of-the art data centres in Quebec, Canada. The Company's shares are listed on the main market of London Stock Exchange under the ticker: ARB.
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